Page 33 - Bullion World Volume 5 Issue 1 January 2025

Bullion World | Volume 5 | Issue 01 | January 2025

Key Enablers for Gold ETF Market Development in India

Enabler Description

SEBI (Securities and Exchange Board of India) has established clear
Regulatory Support guidelines for Gold ETFs, ensuring transparency, security, and
investor protection.

Gold ETFs are taxed as capital assets, benefiting from long-term
Tax Benefits
capital gains (LTCG) tax rates after a 3-year holding period.

Gold ETFs are traded on stock exchanges (NSE, BSE), providing
Liquidity and Accessibility
high liquidity and making them accessible to a broad investor base.

Gold ETFs provide an easy diversification tool for portfolios,
Diversification of Investment Options offering exposure to gold without the complexities of owning
physical gold.

Investors can buy and sell Gold ETFs like stocks, providing an
Convenience and Ease of Trading easier alternative compared to the logistics and storage of physical
gold.

Gold ETFs eliminate the need for storage, security, and insurance
Reduced Transaction Costs costs associated with physical gold, reducing overall transaction
costs.
Government schemes such as Sovereign Gold Bonds (SGB) have
Government Initiatives encouraged investors to consider gold-backed financial products,
indirectly boosting Gold ETF popularity.
Technological developments, including online trading platforms
Technological Advancements and demat accounts, have made Gold ETFs more accessible to retail
investors.
Increased awareness of Gold ETFs and financial literacy campaigns
Market Awareness & Financial
Literacy by mutual fund houses, banks, and other financial institutions have
driven investor adoption.

Introduction of new gold ETFs by various Asset Management
Product Innovation and Variety Companies (AMCs) gives investors multiple choices based on their
risk profiles and objectives.

Gold price fluctuations, particularly during periods of global
Global Gold Price Movements financial uncertainty, have led to an increased demand for Gold
ETFs as a safe-haven investment.

Reduced expense ratios (as low as 0.15%-0.4%) due to economies of
Cost Efficiency of ETFs
scale have made Gold ETFs increasingly attractive.

SEBI's provision allowing Gold ETFs to hedge up to 100% of their
Flexibility in Hedging holdings has enhanced their stability and reduced risk, appealing to
institutional investors.

As investors shift towards financial gold for its convenience and
Investor Preference for Financial ease of handling over physical gold (jewellery, bars, coins), ETFs
Gold
have become a preferred choice.

References:
• SEBI/IMD/CIR No.4/58422/2006 dated January 24, 2006
• SEBI circular CIR/IMD/DF/04/2013 dated February 15, 2013
• SEBI circular CIR/IMD/DF/16/2013 dated October 18, 2013
• SEBI circular CIR/IMD/DF/11/2015 dated December 31, 2015
• SEBI/HO/IMD/DF2/CIR/P/2021/668 dated November 24, 2021

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